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Who Is An Applicant

By Blair Rugh 14 Dec 2016

The Equal Credit Opportunity Act (ECOA) protects "applicants" from discrimination on various illegal basis, including marital status. The scope of ECOA is generally limited to credit applicants, except that implementation of Regulation B, as promulgated by the Federal Reserve Board and later republished by the Consumer Financial Protection Bureau (CFPB), defines "applicant" in 12 C.F.R. §1002.2(e) to include "guarantors" solely for the purposes of Regulation Bʼs spousal signature provisions, 12 C.F.R. §1002.7(d). In 2014, the Sixth and Eighth Circuit Courts issued conflicting decisions on whether a guarantor constituted an applicant to which ECOA protections were available. In the Sixth Circuit case, RL BB Acquisitions, LLC v. Bridgewill Commons Development Group, LLC, and the court held that guarantors were protected. In the Eighth Circuit case, Hawkins v. Community Bank of Raymond, the court held that guarantors are not protected. The Hawkins court restated the accepted standard in reviewing regulations which is that if the statute from which the regulation stems is unambiguous, the regulatory authority issuing regulations to implement the statute may not expand upon the legislative terms. The Hawkins Court held that the term applicant is unambiguous and that the Fed and subsequently the CFPB had no authority to expand the term to include guarantors.

The Hawkins case was appealed to the Supreme Court which was divided on the issue in a four to four tie. Legally that means that the decision of the Hawkins Court was affirmed, but with the potential of future contrary judicial action. Had the Eight Circuit case been appealed to the Supreme Court the same result would have probably been reached to the contrary opinion.

Sometime soon there will be another person appointed to the Supreme Court and there is no assurance that if this issue is taken to the Supreme Court again that the same result will occur. I recommend that all lenders continue to follow the requirements of Regulation B relative to spousal guarantees until a more concrete resolution of the issue is promulgated.

Department of Labor Fiduciary Rule

The Department of Labor has issued rules that will become effective in April regarding fees charged for investment advice to the owners of retirement plans, such as IRA's and 401K's. The advisor must show that in issuing its advice that it is placing the interests of the customer first. Since the rule was issued we have received questions from several banks questioning how they may or may not be affected by the rule. If your banks involvement with retirement plans is selling time deposits to IRA accounts, you are not affected. You are not providing investment advice for a fee. On the other hand, if your bank has a trust department that handles retirement accounts for your customers then you may well be affected. If you are in that situation, you should get advice from your attorney on how the new regulations apply to your activities.


The CFPB Strikes Again

The CFPB recently fined three of the nation's largest reverse lenders a total of $790,000 for misrepresentations in their advertising. My guess is that we have all seen ads for reverse mortgages stating that there are no monthly payments and that the borrower may live in the home for the rest of his or her life. The CFPB stated that the failure to say that the borrower remains responsible for paying the taxes and maintaining hazard insurance on the home was a material misrepresentation in the advertisements. Huh? How many borrowers under reverse mortgages don't understand that they have to continue to pay the taxes and insurance? In my opinion, if the CFPB really wants to protect borrowers, I think it should devise a test that all borrowers have to take before they can borrow money.

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